Life Insurance and Pension

[flyfishnevada]

Looking for ways to reduce spending anticipating Semi-RE this summer. I have a pension, works out to 82% of current take home with COLA. We have some modest investments, no credit card debt, could sell and pay off our vehicles and home and have a positive net worth. We also are pre-paying our kids college and if they go out of state or go beyond 4 years, its on them.

I want to cancel my life insurance. I can take an option with my pension that would reduce it to about 76% of current take home that offers my wife the full pension for her lifetime if I die. I figure thats as good or better than a policy that is costing me $40 bucks a month. I am in good health (overweight, but great cholesterol, blood pressure, etc.) and I exercise regularly and eat very well (lots of veggies, fruit, fiber, etc).

Am I missing something? I figure that the life insurance policy is just throwing money away since my wife would be able to pay all the bills and actually come out ahead (financially) if I kicked it since I wouldn't be around to eat, wear clothes, buy stuff, etc. Sure she'd get a big check if I died before her, but that could be 40 years from now. She is kind of leary, but admits it is the feeling of security she is afraid of losing, but that my logic makes sense. Figured I would ask on here and see if there is an angle were missing.

 

[Katsmeow]

How safe is the pension?

For private companies, the pension guaranty agency has a limit on how much pension it will pay and a surviving spouse can only get 50% even if the pension plan would give the spouse 100%.

If you have a governmental pension, I'm not sure what risk is there.

 

[Koolau]

She is kind of leary, but admits it is the feeling of security she is afraid of losing, but that my logic makes sense.

This one should not be ignored IMO. Since none of us knows how our lives will turn out (heck, you could outlive her!) insurance has as much to do with a "feeling" of security as it does the security itself.

DW and I went the other way and kept the insurance but lowered her survivor benefit in order to get more monthly pension. We're holding off on my SS so that if I go first, her survivor benefit is higher. There may be several things to consider when you are setting this up. Suggest you run some numbers and go over them with DW. Be sure she's on board and comfortable - even if it's not quite as "sensible" to you when all is said and done.

Just my $.02 worth. As usual, YMMV. Good luck with this decision.

 

[brewer12345]

I prefer a belt and suspenders arrangement for these sorts of things, personally. If I am around, I can take action to fix problems. If I am pushing up daisies, I cannot do that, so a big check may be needed. So if I were in your shoes I would probably take the survivor option on the pension and keep a LI policy. But if you have had he policy for several years I would go shop it and see if you could do better on price.

 

[Alan]

This one should not be ignored IMO. Since none of us knows how our lives will turn out (heck, you could outlive her!) insurance has as much to do with a "feeling" of security as it does the security itself.

DW and I went the other way and kept the insurance but lowered her survivor benefit in order to get more monthly pension. We're holding off on my SS so that if I go first, her survivor benefit is higher. There may be several things to consider when you are setting this up. Suggest you run some numbers and go over them with DW. Be sure she's on board and comfortable - even if it's not quite as "sensible" to you when all is said and done.

Just my $.02 worth. As usual, YMMV. Good luck with this decision.

I think the same, and am keeping the insurance and lowering the survivor option.

 

[flyfishnevada]

My pension is pretty safe. Nevada PERS, good assets, not a lot of unfunded liability, well rated.

I considered the keep the LI and reduce the survivor benefit. I need to pencil that out. A gamble also. If I die young, the full pension would be worth much more that the one time check. Still it may have advantages. I have the luxury of adjusting the survivor benefit to whatever I want, of course, with varying costs.

I'm leaning the no LI, full survivor benefits, but not sure yet.

 

[LOL!]

If you die, how much SS survivors' benefits would your family receive? Children generally get a lot. Surviving non-working spouse gets quite a bit.

 

[Moemg]

Remember that she will then only have one SS check not the two you may be used to getting at that point . Plus it really is not much cheaper when one person dies since you still have the same house expenses , car expenses and utility expenses .The food bill may drop a little but she'll probably meet a lot of widows and they love to do lunch. Plus she may need a handyman for things you took care of .

 

[dgoldenz]

If everything works out perfectly, she may very well be better off with the pension. Of course, things change and they tend to be different than the way that you planned them. What if you end up spending down much of the assets you had saved (such as for long term care treatment)? It's a lot easier to replace that with a lump sum tax-free benefit from the life insurance than for her to wait around to get your pension money each month/year. For $40 a month, I would keep it. I am sure if you are in a financially secure position that $40/month will not make or break your life - just make sure that the premiums are guaranteed for however long you want to keep the policy. If your $40/month payment is only guaranteed for another 3 years, that's a little different than if it's guaranteed for the next 30 years.